Economy of Armenia

armenia map
Before the independence of Armenian Republic (in 1990), the economy of country was industry oriented. At this time, main active industries in the region were chemical industry, industrial machinery manufacturing, food processing, textiles, production of resins and electronics. The dependence of these industries on the import of raw materials from foreign countries was an important issue, which weakened these industries after independence.

In fact, economy of the country has changed fundamentally since the independence of the Republic of Armenia from the Soviet Union, and in the new era, sectors such as construction and services have replaced by agriculture and industry as key sectors in economic growth.

Despite the closure of the country’s borders with Turkey and Azerbaijan, GDP growth is improving strongly and by about 13 percent, due to its difficulties but good economic development Armenia is called “Caucasian tiger”.

Mineral sources such as copper, zinc, gold, marble, bauxite and molybdenum in Armenia is the reason that Armenia attracted a lot of foreign income and investment, although this sector has not yet been developed in Armenia. The industrial sector like textile industry, chemical industry, and aluminum production are the developing industries in Armenia with a share of 10% of economy of the country.
The privatization program in Armenia began in the mid-1990s with small cases and gradually expanded to larger cases and industries such as national infrastructure for electricity network.

Due to the great potential for exporting, the diamond processing industry was one of the most important and main factors in attracting foreign capital from 2000 to 2004. Currently, other industrial sectors that promote industrial growth are energy, metallurgy and food processing. Since the collapse of the Soviet Union, in 1994, Armenia was the first country among the former Soviet republics that started its growth over, which was a significant event which happened after the heavy earthquake and the war Nagorno-Karabakh. After 1994, by the end of the Nagorno-Karabakh conflict, Armenia’s economic situation has improved, and in the late 1990s inflation rate coincided with single-digit economic growth, this process continued until 2017 when Central Bank of Armenia announced that inflation rate equals to almost zero.

After the political crisis in 2018, which resulted from the election of Serzh Sargsyan as Prime Minister of Armenia, people who had long time been tired of the rule of traditional parties and corrupt politicians, participated in protests and elected Nicole Pashinyan as their leader to become the prime minister of the country. Ten months after the revolution parliamentary elections were held, in which Pashinyan won the majority of voters in parliament with the slogan of “Economic reformation and sustainable development”.

From the very beginning, Pashinyan tried to overcome obstacles of development, including fighting corruption by following the example of Georgia and seeking advice from the European Union, expelling corrupt politicians, reconciling with Baku over the Nagorno-Karabakh crisis, and expanding economic cooperation with neighbor countries through cooperation with Iran and Russia to fulfill his promises.
It has been so many years that Armenia has been waiting to join the European Union and enjoy the benefits of membership in this great economic institution, but unfortunately, due to the defective economic and political structures, it has not yet been able to meet many of the standards set by Brussels, Pashinyan tried to overcome this issues and build the future of Armenia in a different way.

Of course, Pashinyan’s efforts were not limited to EU membership, and Yerevan paved the way for Armenia’s multilateral economy by joining the Eurasian Economic Community, which Russia established for financial and political exchanges for countries of former Soviet Union. Last year, the International Monetary Fund spoke of bright horizons for Armenia’s future, forecasting positive economic growth of over 5% for the coming years.

With the global pandemic of the coronavirus, Armenian economy has also been affected, and according to the latest statistics, Armenia’s economic activity has decreased by 9.3% in recent months, with the largest decrease in the trade sector by more than 23%.
The three world economic and financial institutions, World Bank, International Monetary Fund and Asian Development Bank, predicted in their reports that among the three South Caucasus republics, Armenia has suffered the least from the global coronavirus crisis and would have better economic results.

Artak Manukyan, an expert on economic affairs and a member of the parliamentary group of the Armenian National Assembly, emphasized that the Georgian economy is dependent on attracting tourists and Azerbaijan has also suffered from the decrease of oil price. According to the Asian Development Bank, Armenia’s economic growth rate for the current year will be 2.2%, for Azerbaijan 0.5% and for Georgia zero. The World Bank has forecast 1.7 percent economic growth for Armenia this year, 0.1% for Georgia and minus 0.2 % for Azerbaijan. The IMF report has been different for the three republics and has predicted negative growth for all of them.

According to the Armenian MP, the country’s economic growth is based on the processing industry, and government has diversified the structure of the economy. Armenia has predicted economic growth of 4.9% in its budget for the year 2020, but now, due to the global economic crisis, these forecasts need to be revised. The Central Bank of Armenia has forecast 0.7% growth for the country’s economy this year.

Trade Relations between Iran & Armenia

Fortunately, trade relations between the two countries have been growing, as a result, Iranian businessmen and traders are cooperating with Armenia at a high level, but the existence of some problems which need to be considered, is an obstacle for the achievement of higher growth. The new tariffs that have been imposed have facilitated the free movement of traders and provided the conditions for the development of trade relations between the two sides.

Iran-Armenia trade relations were influenced by Iran’s membership in the Eurasian Trade Union since 2019.

The initial agreement on the formation of the Eurasian Economic Union was signed on May 29, 2014 between Russia, Belarus and Kazakhstan, replacing the Eurasian Customs Union, followed by Armenia and Kyrgyzstan. The union officially started its work on January 1, 2015. Eurasian countries now have an area of 20 million square meters and a population of more than 183 million, which is 5.2% of the world’s population.

The objectives of this economic union include facilitating trade, creating a common market in the field of independent members and the gradual elimination of customs laws within the union, establishing a common foreign tariff between member countries and harmonizing customs formalities.

The Temporary Trade Agreement between Iran and the Eurasian Economic Union member states was signed on May 17, 2018 in Astana, Kazakhstan. The agreement was notified to the government by the Speaker of the Islamic Consultative Assembly on July 6, 2019, and the President notified it to the Ministry of Industry on July 8, 2019 for implementation. According to the provisions of this agreement, after three years of temporary membership in the Eurasian Free Trade Zone, the necessary context will be prepared for Iran’s membership in this union.

Due to the variety of the market and the available resources in the member countries of this union, joining the union creates a significant opportunity for the Iranian economy, and in this way, part of the effect of sanctions can be offset. Certainly, joining the Eurasian Economic Union and cooperating with this union can be a new gateway for the Iranian economy, so that it can easily establish economic relations with other members or develop its relations.

Joining the union has many economic benefits for Iran, including custom tariff reductions for Iranian exporters to Eurasian Economic Union countries. Also, since the Eurasian Union has reduced the usage of USD in performing trading affairs and emphasized on doing payments in the national currency, the share of commercial payments done by national currency has increased by 70%, which is very promising for Iranian traders in the current conditions of sanctions.
According to the agreement, Iran will receive special customs concessions from the Eurasian Economic Union, and the countries of this union will be able to increase their exports to Iran by 75%. Iran can also increase the export of its goods to five Eurasian countries by several times with the concessions which receives.

Another benefit of Iran’s membership to the Eurasian Economic Union is the creation of a bridge to connect the market with more than 180 million people and a potential market to increase the country’s exports. Also, the competitiveness of Iranian goods, significant employment for the domestic labor force, significant capital attraction in the northern and southern regions of the country and the benefit of preferential markets and target markets are among the other benefits of this agreement.

Although only five countries are currently members of the union, more than 40 countries and international organizations, including China, Indonesia, South Korea, India, Egypt, Serbia and even some Latin American countries, have announced their readiness to work within the union.

According to economic experts, Iran’s membership in the Eurasian Economic Union could lead to a big jump in Iran’s oil and non-oil exports. Although the volume of trade between Iran and the countries of the region is not yet favorable, but there is great potential for its growth. Iran’s membership in such a union can have economic and political benefits and bring the country closer to the markets of the member countries of this union, which most of them have a common historical and cultural background and a small share in the market of these countries. This will help the country to significantly reduce the pressure of Western economic sanctions.

Strengthening relations with Iran is important for the members of the Eurasian Union because Iran is in the best transit position, between the Caspian Sea in the north and the Persian Gulf in the south, also in an east-to-west transit position, which could be a good route for the transit of goods from EU member states to use the international north-south transport corridor.

Armenia, the only country in the Eurasian Economic Union that shares land border with Iran, has become a bridge between Iran and the union. This agreement creates new opportunities in the interests of both parties. Former Armenian Minister of Economic Development, Mr.Artsvik Minasyan has stated that the agreement will allow Armenia to act as an important transit route between Iran and the larger Eurasian market.